A guide to small business loans for minorities
According to a 2016 Fact Sheet from the Minority Business Development Agency, there are eight million minority-owned businesses in the United States — which is a 38% increase from 2007.
Despite this entrepreneurial boom, one factor continues to limit the establishment, expansion and growth of minority-owned businesses: access to capital.
On average, minorities are less likely to receive loans, and when they do, they receive lower dollar amounts and higher interest rates.
Yet, not all hope is lost.
Although the small business financing landscape has a long way to go before the playing field is equal for minorities, there are a handful of small business loan programs that are designed specifically for minority business owners. In addition, there are certain resources and business grants available exclusively to minorities.
If you are a minority business owner and are interested in financing to help grow your business, take a look at the following funding options available.
What are minority small business loans?
Minority small business loans are loans designed specifically to make capital more accessible for small businesses owned and operated by minorities.
It is important to note that there isn’t one singular type of small business loan designed for minority business owners. Business loans specifically for minorities can come from multiple loan providers including the SBA, microlenders, or non-profit organizations.
And while financing options designed exclusively for minority business owners can be great opportunities to access growth capital, they should always be considered alongside all financing options available.
Who qualifies for minority small business loans
Small business loans for minorities are typically allocated towards businesses in which a majority owner (often defined as at least 51% ownership) belongs to a specific minority group.
Requirements vary per lender so it’s important to check the fine print. While some minority business loan programs may also require all business members to be part of a minority group, most programs only require the owner(s) to belong to a specific minority group.
The goal of minority business loans is to level the playing field for minority-owned firms and improve their chances of accessing the necessary capital to start, operate and grow their businesses.
Minority business funding: what are my options?
Let’s take a closer look at lending options available to minority business owners.
Minority SBA loans
The U.S. Small Business Administration (SBA) offers several loan programs for various purposes, some of which are designed specifically for underserved communities.
Small Business Administration 8(a) Business Development Program
The 8(a) Business Development Program is designed specifically for disadvantaged small businesses. It’s important to note that the SBA 8(a) program does not actually offer loans. Rather, minority or disadvantaged business owners who participate in the SBA’s 8(a) Business Development program have a better chance of qualifying for SBA loans.
So, then, what does the 8(a) Business Development program offer to minority business owners?
Each year, a certain percentage of federal contracting dollars are reserved for businesses that participate in the 8(a) program. Participating means you have access to contracts with limited competition, get access to a specialist to help you navigate federal contracting, and receive management and technical assistance.
In addition to your business being at least 51% owned and controlled by U.S. citizens who are economically and socially disadvantaged, there are a few other requirements to qualify for the SBA 8(a) Business Development program including:
- Having a personal net worth of 250,000 or less.
- Being involved in the management of day-to-day operations.
- Possessing $4 million or less in assets.
You’ll also need to get certified as an 8(a) small business before you can participate in this program. You can learn more here.
SBA Community Advantage Loans
SBA Community Advantage loans fall under the 7(a) umbrella, and are administered by community-based lenders. They are available to entrepreneurs in underserved markets who need anywhere between $50,000 and $250,000 in financing. Community Advantage loans are guaranteed up to 85% for a $250,000 loan, with interest rates typically falling between 7% and 10%.
SBA Community Advantage Loans are structured as term loans. This means that they have a specified repayment schedule and either a fixed or variable interest rate.
Community Advantage (CA) Lenders are required to make at least 60% of their loans in underserved markets. “Underserved markets” include low-to-moderate income communities, businesses where more than 50% of the full time workforce is low-income, veteran-owned businesses, and “rural areas”.
Through the SBA Microloan program, small businesses and nonprofit child care centers can borrow anywhere from $500 to $50,000.
While anyone can apply, the Microloan program is designed to assist new and early stage businesses, particularly those that are owned by women, low-income, veteran, and minority small business owners.
In fact minority-owned businesses received 48% of the Microloans issued in 2018.
Union Bank’s Business Diversity Lending Program
Designed to help minority business owners secure up to $2.5 million, Union Bank’s Business Diversity Lending program requires minority or women entrepreneurs to “own and actively manage at least 51 percent of the business” seeking funding. The company also needs to have been open for at least two years and must have annual sales below $20 million.
The nonprofit, community organization Accion offers term loans ranging from $300 to $1,000,000 for both established and new businesses. While Accion doesn’t exclusively fund minority-owned ventures, over 60% of their borrowers come from minority communities. Fixed rates range from 7% to 34% APR depending on your credit score, as well as other criteria.
The National Minority Supplier Development Council Business Consortium Fund
Certified by the U.S. Department of the Treasury as a Community Development Financial Institution, the Business Consortium Fund (BCF) works to make financing more accessible for minority business owners through a variety of programs.
Through their Direct Lending Program, minority business owners can borrow anywhere from $75,000 to $500,000 from the BCF. This can be borrowed in the form of either a term loan or line of credit.
To be eligible, you must certify your business as a minority business enterprise through the National Minority Supplier Development Council (NMSDC).
Indian Loan Guarantee Program
Through the Indian Loan Guarantee program, federally recognized American Indian tribes and Alaska Native groups have access to affordable financing guaranteed up to 90%.
Individuals can borrow up to $500,000, while higher amounts are available to tribes and business entities. Loan proceeds can be used for a wide variety of purposes from working capital to purchasing equipment.
To be eligible for this program, the borrower must have 20% tangible equity in the project. Additionally, the project must also benefit the economy of the reservation or tribal service area.
Business Consortium Fund Loan
Certified by the U.S. Department of the Treasury, the Business Consortium Fund (BCF) Loan exclusively caters to minority entrepreneurs who haven’t had luck securing financing through traditional channels.
Loans of up to $500,000 are available. Interest rates are capped at 3 percent above the prime rate and repayment terms extend up to seven years.
To be eligible, you must certify your business as a minority-owned through the National Minority Supplier Development Council (NMSDC). You also must have contracts or purchase orders with the NMSDC.
State and local minority loans
Many of the financing options geared towards minority business owners operate on the state and local level, which often results in specific lending options for certain industries and use-cases.
It is a good idea to research your state’s unique loan programs, grants, and resources for minority-owned businesses. You may even want to consider working directly with a state-specific organization. They can help you navigate the terrain and identify the best options for you.
Community Development Financial Institution (CDFI) Loans
Community Development Financial Institutions are mission-driven financial institutions. They were created in order to provide affordable credit, capital and other services to minority and economically distressed communities. There are over 950 CDFIs nationwide that are certified by the CDFI Fund, a part of the U.S. Department of the Treasury.
The CDFI Fund itself provides technical and financial assistance to Community Development Financial Institutions serving minority communities through two programs: The Black Enterprise Award Program and Native Initiatives.
You can use the CDFI Fund’s Award Database to search for organizations in your state that have received awards.
Business Center for New Americans
The Business Center for New Americans provides small business loans and microloans, as well as a number of other business services, to immigrant and refugee entrepreneurs in New York City.
Retail, light manufacturing, restaurant and service business may borrow up to $50,000. Interest rates range between 8.25% and 10%, and repayment terms extend from six months to three year.
New businesses are eligible, and there is no minimum credit score required to qualify.
Office of Hawaiian Affairs Malama Loan
The Office of Hawaiian Affairs (OHA) offers the Malama Loan to Native Hawaiian small business owners. Applicants can borrow $2,500 to $100,000 with repayment terms of up to seven years at a 4% APR. Use-cases for the OHA’s Malama Loan include establishing a small business, building upon an existing small business, or using the loan proceeds as working capital.
To be eligible, you must be a resident of the state of Hawai‘i. You must also have a current OHA Hawaiian Registry card to prove you’re of Native Hawaiian ancestry.
Minority and Women Revolving Loan Trust Fund Program
The Minority and Women Revolving Loan Trust Fund program provides working capital loans of up to $35,000, as well as fixed asset loans of up to $50,000. Loan applicants must be minority or women entrepreneurs with no more than $100,000 in annual gross revenue.
The National African American Small Business Loan Fund
This initiative is the result of a partnership between The Valley Economic Development Center and JPMorgan Chase. The National African American Small Business Loan Fund is designed to provide financing to African American-owned small businesses in New York City, Chicago and Los Angeles.
Loan amounts range from $35,000 to $250,000. Borrowers can also receive financial consulting as well as technical assistance with marketing and business plan development. Capital can be used towards expansion, to address short-term cash flow needs and to provide contractor lines of credit.
Resources and grants for minority businesses
Both public and private organizations offer grants specifically designed for minority-owned businesses. While some grants may not be available every year, it’s important to keep an eye out for these debt-free opportunities.
The grants.gov website (also available as an app) is a great resource to keep tabs on more than 1,000 grant programs across all 26 federal grant-making agencies, including the Department of Commerce and the U.S. Small Business Administration.
Rural Business Development Grants
With grants ranging from $50,000 to $500,000, Rural Business Development Grants (RBDG) are designed to provide technical assistance, training and other initiatives that contribute to the development or expansion of private businesses in rural areas. Businesses must employ 50 or fewer employees and have less than $1 million in gross revenue.
FedEx Small Business Grant Contest
The FedEx Small Business Grant Contest is open to all kinds of qualifying small businesses, who compete for 10 prizes of up to $50,000 in prize money and up to $7,5000 in FedEx office print and business services.
Minority Business Development Agency (MBDA) Business Centers
With 34 locations across the United States — located in areas with the highest concentration of minority populations and the largest number of minority businesses — MBDA Business Centers provide a myriad of services to assist minority-owned firms.
Minority entrepreneurs can access one-on-one financial counseling from business experts at Minority Business Development Agency centers for assistance in everything from securing capital to competing in contracts.
Minority Chamber of Commerce
A membership-driven entity, The Minority Chamber of Commerce has locations in most cities. These advocacy groups push legislation that assist black, Asian, and Hispanic entrepreneurs, in addition to offering general resources and networking opportunities.
Resources and loans for minority business owners from Funding Circle
Funding Circle offers fast and affordable financing to help minority-owned businesses get the capital they need to grow. We offer term loans ranging from $25K-$500K, with rates starting at just 4.99%. You deserve to know the true cost of your loan, so we won’t nickel and dime you with every payment. Our fee structure is simple: we charge an origination fee on each loan we fund ranging from 3.49% to 6.99%
Funding Circle’s application process is quick, easy, and transparent. You can apply for a loan and get your free instant quote in just 10 minutes, with money in your bank account in as few as 5 days once approved.
It’s simple and easy to get a rate quote. Check your eligibility for a small business loan from Funding Circle today!
How does Funding Circle’s application process differ from other small business lenders who secure funding for minority business owners?
- The underwriting process at traditional banks can be lengthy, confusing, and opaque. At Funding Circle, we’ve taken the best parts of an SBA business term loan — like fixed and affordable once-monthly payments and no prepayment penalties — and created something faster and more flexible.
- Unlike traditional lenders, we also deliver a best-in-class and transparent experience to our business customers. You’ll work with a dedicated loan specialist who will guide you through the entire application process.
- We strive to deliver a decision quickly — often in as little as 24 hours after document submission.
Do you offer small business loans for startups?
- We like to support all kinds of entrepreneurs, but our focus right now is on helping established small businesses grow and thrive. To qualify for a loan from Funding Circle, your small business has to have been operating for at least two years.
What documentation is required with my application?
- 2 most recent years of business tax returns
- 1 most recent year of personal tax returns
- 6 most recent months of bank statements
- Business debt information
- Signed guarantor form for any owner with 20%+ ownership of the business